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2016 (8) TMI 505 - ITAT KOLKATA

2016 (8) TMI 505 - ITAT KOLKATA - TMI - MAT - Taxability of book profits of the merged entity - book profits u/s 115JB - Held that:- There was profit as per profit and loss account in the case of HPLCL and loss in the case of HPL on standalone basis. Pursuant to the merger, there was only combined loss as per profit and loss account and hence there cannot be any liability that could arise u/s 115JB of the Act in the hands of the merged entity. It is not in dispute that the merger had taken place .....

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f taxes only when it is in accordance with law as per Article 265. In view of the aforesaid findings and discussions, we hold that the ld CITA had rightly directed the ld AO to recompute the book profits u/s 115JB of the Act after taking into accounts the combined accounts of both the companies (i.e merged entity) as well as their unabsorbed losses and depreciation, if any. Accordingly, we find no infirmity in the order of the ld CITA in this regard and dismiss the grounds raised by the revenue. .....

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for AY 2009-10 vide his order dated 27.12.2011. 2. The only issue to be decided in this appeal is as to whether the book profits of the merged entity could be brought to tax in the facts and circumstances of the case. 3. The brief facts of this issue is that the assessee is a domestic company registered under the Companies Act, 1956 and has a petrochemicals plant at Haldia, Dist. Midnapur, West Bengal for the manufacture and sale of petrochemical products. The assessee had prepared its annual ac .....

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he Annual General Meeting (AGM) of the Shareholders as prescribed under the Companies Act till the disposal of the case. Consequently, the accounts of the assessee for the relevant financial year could not be approved by the Board of Directors or laid before the shareholders for their approval at the AGM. The assessee filed its original return of income on 24.09.2009. In the said return, the total loss as per the normal provisions of the Act was computed by the assessee at ₹ 313,57,98,702/ .....

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amounting to ₹ 2,08,95,853/- was refundable. On 28.03.2011 the assessee filed a revised return to further claim ₹ 6,04,010/- on account of TDS. Therefore, the assessee, having declared nil income, claimed the entire TDS amounting to ₹ 2,14,99,863/- as refund in its return. In the meanwhile a company named HPL Cogeneration Limited (HPLCL) was merged with the assessee pursuant to the scheme of merger sanctioned by the Hon'ble Calcutta High Court vide order dated 21.05.2009 wi .....

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total income of HPLCL for the A.Y. 2009-10 was nil as per the normal provisions of the Act. Under section 115JB of the Act, HPLCL calculated tax of ₹ 34,29,654/- on a book profit of ₹ 3,02,70,551/-. As HPLCL had paid ₹ 2,06,00,000/- and ₹ 2,22,86,212/- as advance tax and TDS respectively it claimed refund of ₹ 3,94,56,558/- in its return of income. It is reiterated that the Income-tax returns for A.Y. 2009-10 were filed by both the companies on a standalone basis i .....

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ctional Income tax office of the assessee i.e. DCIT, Circle-12, Kolkata and the return of the assessee and HPLCL be assessed together. A copy of the letter was also sent to the AO of the Assessee. The assessee wishes to place on record that there is a factual error in the 3rd paragraph of the Ld. AO's order where he asserts that it was only during the assessment proceedings that it was informed that HPLCL has merged with the assessee, whereas the assessee had duly informed the ld AO on 26.10 .....

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ame reasons set out above as the income of HPLCL is merged with HPL w.e.f the date of merger i.e. 01/04/2008 (AY 2009-10) and has become the income of the assessee. There is no separate existence of the profits of the assessee any longer. Consequently, the assessee was also entitled to refund of the tax paid by HPLCL (Rs.4,28,86,212/-). 3.2. The Ld. A.O. proceeded as under- (i) The Ld. A.O. agreed that the income of the Appellant and HPLCL will have to be assessed together as a single unit post .....

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HPLCL as ₹ 3,02,70,551/- (which was the book profit as per return filed by HPLCL on a standalone basis). The Ld. A.O.'s logic was that as "the accounts and financial statements [of HPLCL] were finalized and placed before the AGM" the book profit of HPLCL has to be considered on a standalone basis as profit u/s 115JB. 3.3. The assessee submitted that the Ld. A.O. grossly in assessing book profit of HPL u/s 115JB as ₹ 3,02,70,551/- based on the book profits of HPLCL as if .....

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under normal tax computation. The Ld A.O. also erred in failing to appreciate that once a company merged into another from the effective date as pronounced by the High Court, it ceases to have any existence and consequently its income loses its separate character and so no separate treatment or segregation is possible during assessment. Income of the merging company arising prior to the date of the merger will be determined separately but assessed in the hands of the merged company if, at the ti .....

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tioned the scheme of amalgamation on 20/9/2001 with retrospective effect from 1/1/2001. Here also the two companies had filed their returns separately and had also held their AGM separately but the Mumbai Tribunal held that the merging company was entitled to prepare second set of accounts combining the book profits u/s 115JB of both companies as well as their unabsorbed losses and depreciation. This decision flows from the principle that once a company is merged into another it cannot have a se .....

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ny. 2. That in the facts and in the law, the Ld. CIT(A) erred in allowing the assessee the effect of amalgamation while computing book profit even though the assessee two different returns. 6. The ld DR narrated the facts of the case and argued that M/s HPLCL had voluntarily filed its return of income for the Asst Year 2009-10 on standalone basis declaring book profits u/s 115JB of the Act and had even paid sufficient advance tax and claimed TDS refund thereon. The return was filed on 24.9.2009 .....

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4.2008. Section 115JB starts with a non-obstante clause and that would override all other provisions of the Act and makes it independent of other provisions of law even if it is contrary to other provisions. In response to this, the ld AR argued that the process of merger gets completed only when the court order approving the merger is received and filed with the Registrar of Companies by filing of statutory Form No. 21 by paying appropriate fees. Only on intimation of the same, the assessee (me .....

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ation order approved by Hon ble Calcutta High Court (pages 23 to 42) ; Intimation of amalgamation dt 19.10.2009 u/s 391(3) of the Companies Act 1956 in Form 21 to the Registrar of Companies (pages 43 to 48 ) ; ITR acknowledgement form of the assessee for AY 2009-10 on standalone basis (page 49) ; ITR acknowledgement form of HPLCL for AY 2009-10 on standalone basis (page 50) ; Intimation of amalgamation vide letter dated 26.10.2009 to the ld AO (page 51) ; letter dated 14.12.2011 to the ld AO sub .....

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iled by the assessee. It would be relevant to reproduce the relevant clauses in the scheme of amalgamation as below:- Clause 10 - CONDUCT OF BUSINESS OF THE TRANSFEROR COMPANY With effect from the Appointed Date and upto the Effective Date: 10.3. All profits or income accruing or arising to the Transferor Company or expenditure or losses arising or incurred by the Transferor Company shall for all purposes be deemed to have accrued as the profits or income or expenditure or losses, as the case ma .....

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feror Company. 7.1. We find that the arguments advanced by the ld DR that section 115JB of the Act starts with a non-obstante clause and would override all other provisions of the Act and hence the return filed voluntarily by HPLCL offering book profits cannot be ignored by the revenue, does not hold water as the scheme of amalgamation has been approved by the Hon ble Calcutta High Court and pursuant to the merger, M/s HPLCL ceases to exist in the eyes of law. HPLCL had been given its legal deat .....

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ion approved by the Hon ble Calcutta High Court with effective date from 1.4.2008. We find that the Co-ordinate Bench decision of this Tribunal in the case of Pampasar Distillery Ltd vs ACIT reported in (2007) 15 SOT 331 (Kol) dated 28.2.2007 had held in Para 19 of its order that the AO can make the assessment of the income prior to the period of amalgamation of Pampasar Distillery Ltd in the hands of the successor company. In other words, the question of assessing the income of Pampasar Distill .....

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e second set of accounts combining the book profits u/s 115JB of both companies as well as their unabsorbed losses and depreciation. 7.2. The ld AO observed that in the instant case , M/s HPLCL had merged with M/s HPL and that the company M/s HPLCL had ceased to exist since its date of merger and has dissolved. We find that the ld AO had accepted the fact that HPLCL is not in existence for the purpose of computation of income under normal provisions of the Act. But for the purpose of computation .....

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